UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2022 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______, 20___, to _____, 20___. Commission File Number 001-41204 Hour Loop, Inc. (Exact Name of Registrant as Specified in its Charter) Delaware 47-2869399 (State or Other Ju ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2022 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______, 20___, to _____, 20___. Commission File Number 001-41204 Hour Loop, Inc. (Exact Name of Registrant as Specified in its Charter) Delaware 47-2869399 (State or Other J ...

Part I [Business](index=5&type=section&id=Item%201.%20Business) Hour Loop, Inc. is an online retailer primarily on Amazon, leveraging a wholesale model and proprietary software - The company operates a wholesale (reselling) model, with Amazon accounting for **virtually all revenue in 2020 and 2021**[16](index=16&type=chunk)[17](index=17&type=chunk)[24](index=24&type=chunk) - Key competitive advantages include a strong operations team and a **proprietary, highly customized software system** for optimizing operations, sales, and inventory management[22](index=22&type=chunk) Historical Revenue and Net Income (2019-2021) | Year | Revenue | Year-over-Year % | Net Income | Net Income % | Year-over-Year % | | :--- | :--- | :--- | :--- | :--- | :--- | | 2019 | $26,564,693 | 9% | $-423,073 | -2% | -165% | | 2020 | $38,655,264 | 46% | $3,820,698 | 10% | NA | | 2021 | $62,792,981 | 62% | $4,779,083 | 8% | 25% | - The company employs a multi-faceted pricing strategy using a proprietary auto-pricing system, including competition-based, promotional, and value-based pricing to maximize margins[25](index=25&type=chunk)[26](index=26&type=chunk)[30](index=30&type=chunk) Growth Objectives (2021-2024) | Metric | 2021 Plan | 2022 Plan | 2023 Plan | 2024 Plan | | :--- | :--- | :--- | :--- | :--- | | Suppliers | 300 | 650 | 1,200 | 2,000 | | Business Managers | 50 | 200 | 350 | 600 | | Active SKUs | 60,000 | 130,000 | 200,000 | 300,000 | | Total Employees | 120 | 250 | 500 | 900 | - On January 11, 2022, the company closed its initial public offering (IPO) of **1,725,000 shares at $4.00 per share**, raising **gross proceeds of $6.9 million**[88](index=88&type=chunk) [Risk Factors](index=17&type=section&id=Item%201A.%20Risk%20Factors) The company faces intense competition, Amazon dependence, supply chain risks, internal control weaknesses, and governance issues - The company is heavily dependent on Amazon, with **100% of net revenue in 2021 and 2020** generated through the Amazon sales platform, posing a significant risk to operations and financial results[111](index=111&type=chunk) - The online retail business is intensely competitive, with competitors potentially having greater resources, better vendor terms, and more aggressive pricing, which could reduce the company's sales and profits[96](index=96&type=chunk)[97](index=97&type=chunk) - The CEO, Sam Lai, and his wife, SVP Maggie Yu, beneficially own **95.1% of the company's voting power**, making it a "controlled company" and influencing corporate affairs while exempting it from certain Nasdaq governance requirements[153](index=153&type=chunk)[154](index=154&type=chunk) - The company's current accounting and inventory tracking systems are not fully operationalized for item-level cost tracking and period-end closing, relying on manual procedures that could impair accurate and timely financial statements[162](index=162&type=chunk)[163](index=163&type=chunk) - The company faces potential liabilities for uncollected sales taxes, estimating it owed **$620,963** as of December 31, 2021, and is negotiating with states for compliance[158](index=158&type=chunk) - The COVID-19 pandemic has negatively impacted the business through supply chain disruptions, sourcing limitations, and fulfillment limits imposed by Amazon, which could continue to affect operations[150](index=150&type=chunk) [Unresolved Staff Comments](index=36&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments[191](index=191&type=chunk) [Properties](index=36&type=section&id=Item%202.%20Properties) The company operates with a virtual headquarters and leases warehouse and office spaces in China and Taiwan - The company utilizes a virtual office for its headquarters in Redmond, WA, and leases warehouse and office space in China and Taiwan[192](index=192&type=chunk) [Legal Proceedings](index=36&type=section&id=Item%203.%20Legal%20Proceedings) The company is not currently involved in any material legal proceedings affecting its business or financial position - There are no material legal proceedings pending against the company[193](index=193&type=chunk) [Mine Safety Disclosures](index=36&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company - Not applicable[194](index=194&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=37&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Common stock trades on Nasdaq, 35 million shares outstanding; earnings retained for business expansion, no dividends - The company's common stock began trading on The Nasdaq Capital Market on January 7, 2022, under the symbol "HOUR"[88](index=88&type=chunk)[197](index=197&type=chunk) - As of March 29, 2022, there were **35,032,753 shares** of common stock outstanding[198](index=198&type=chunk) - The company has never paid cash dividends and does not plan to in the foreseeable future, intending to retain earnings for business growth[199](index=199&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=38&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Revenue grew 62.4% to $62.8 million in 2021, with net income increasing to $4.8 million, reflecting strong growth and liquidity [Results of Operations](index=40&type=section&id=Results%20of%20Operations) Comparison of Operations (FY 2021 vs. FY 2020) | Statement of Operations Data | Year Ended Dec 31, 2021 | Year Ended Dec 31, 2020 | | :--- | :--- | :--- | | Total revenues | $62,792,981 | $38,655,264 | | Gross profit | $34,808,646 | $22,169,494 | | Income from operations | $5,474,149 | $3,840,569 | | Net income | $4,783,773 | $3,825,389 | | Total Comprehensive Income | $4,779,083 | $3,820,698 | - Revenue increased by **$24.1 million (62.4%)** in 2021, attributed to continued growth in the operating model and a favorable e-commerce environment, with total orders increasing by **67%** from 1,364,557 in 2020 to 2,289,467 in 2021[221](index=221&type=chunk) - Cost of Goods Sold increased from **$16.5 million** in 2020 to **$28.0 million** in 2021, in line with the higher volume of items sold[222](index=222&type=chunk) - Operating Expenses increased by **$11.0 million**, from **$18.3 million** in 2020 to **$29.3 million** in 2021, primarily due to higher Amazon platform fees proportional to revenue, increased employee compensation, and IPO-related costs[223](index=223&type=chunk) [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) Summary of Cash Flows (FY 2021 vs. FY 2020) | Cash Flow Data | Year Ended Dec 31, 2021 | Year Ended Dec 31, 2020 | | :--- | :--- | :--- | | Net cash from operating activities | $7,764,057 | $3,824,729 | | Net cash used in investing activities | $(16,115) | $0 | | Net cash provided by (used in) financing activities | $(2,126,177) | $299,261 | | Net increase in cash | $5,624,508 | $4,129,101 | | Cash - end of the period | $10,592,572 | $4,968,064 | - Cash from operating activities **more than doubled to $7.8 million** in 2021, driven by higher net income[234](index=234&type=chunk) - Cash used in financing activities in 2021 was primarily due to a **$6.3 million distribution to stockholders**, partially offset by **$4.2 million in long-term debt** from related parties[236](index=236&type=chunk) [Contractual Obligations and Other Events](index=43&type=section&id=Contractual%20Obligations%20and%20Other%20Events) - The company converted from an S corporation to a C corporation on June 30, 2021, resulting in a distribution of **$4,170,418** in retained earnings to stockholders, who then loaned this amount back to the company[245](index=245&type=chunk)[250](index=250&type=chunk) - A Paycheck Protection Program (PPP) loan of **$27,012** received in 2020 was fully forgiven on May 6, 2021[243](index=243&type=chunk)[244](index=244&type=chunk) - As of December 31, 2021, the company had an outstanding loan of approximately **$4.17 million** from its CEO and SVP, bearing **2% interest** and due on December 31, 2022[250](index=250&type=chunk) [Controls and Procedures](index=48&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded disclosure controls were ineffective as of December 31, 2021, due to material internal control weaknesses - Management concluded that disclosure controls and procedures were **not effective as of December 31, 2021**[279](index=279&type=chunk) - Material weaknesses identified include: * Lack of segregation of duties in the accounting team * The same person can authorize and make payments * Credit card expenses lack prior authorization * Limited banking access for independent verification by team members[288](index=288&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=50&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Led by founders, the company is a Nasdaq controlled company due to ownership, with a five-member board and Audit Committee - The company is led by its founders, Sam Lai (CEO) and Maggie Yu (SVP), who are married[293](index=293&type=chunk)[294](index=294&type=chunk)[305](index=305&type=chunk) - The company is a "controlled company" under Nasdaq rules because CEO Sam Lai and SVP Maggie Yu collectively own **95.1% of the voting power**, exempting it from certain corporate governance requirements like having a majority of independent directors[154](index=154&type=chunk)[308](index=308&type=chunk) - The Board of Directors has five members, **three of whom (Douglas Branch, Michael Lenner, Minghui (Alan) Gao) are determined to be independent**[312](index=312&type=chunk) - An Audit Committee has been established, consisting of the three independent directors[315](index=315&type=chunk) [Executive Compensation](index=56&type=section&id=Item%2011.%20Executive%20Compensation) Executive compensation for 2021 included significant salaries and bonuses, with performance-based incentives and an equity plan 2021 Summary Compensation | Name and Position | Year | Salary ($) | Bonus ($) | All Other Compensation ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | :--- | | Sam Lai (CEO) | 2021 | $350,000 | $300,000 | $3,237 | $653,237 | | Maggie Yu (SVP) | 2021 | $318,461 | $500,000 | $3,237 | $821,698 | | Rahul Ratan (Former CFO) | 2021 | $107,692 | $10,000 | $0 | $117,692 | - Employment agreements for the CEO and SVP include annual base salaries (**$500k** for CEO, **$450k** for SVP), guaranteed bonuses, and performance-based bonuses tied to net profit growth and vendor acquisition targets[337](index=337&type=chunk)[338](index=338&type=chunk)[341](index=341&type=chunk) - The company adopted the 2021 Equity Incentive Plan, authorizing **4,995,000 shares** for issuance, allowing for grants of stock options, RSUs, and other awards to officers, directors, and employees[376](index=376&type=chunk)[378](index=378&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=68&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) CEO Sam Lai and SVP Maggie Yu collectively own 95.1% of common stock, giving them controlling interest Security Ownership of Principal Shareholders and Management (as of March 29, 2022) | Name of Beneficial Owner | Shares Beneficially Owned | Percentage of Outstanding Common Stock | | :--- | :--- | :--- | | Sam Lai | 33,303,544 | 95.1% | | Maggie Yu | 33,303,544 | 95.1% | | All executive officers and directors as a group (6 persons) | 33,307,753 | 95.1% | - Sam Lai and Maggie Yu are husband and wife and are deemed to beneficially own each other's shares, resulting in a combined controlling stake of **95.1%**[405](index=405&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=70&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Significant related party transactions, primarily loans from controlling shareholders, impact director independence - On July 27, 2021, after converting to a C-Corp, the company distributed **$4,170,418** in retained earnings to Sam Lai and Maggie Yu, who then loaned the same amount back to the company at **2% interest**, due December 31, 2022[411](index=411&type=chunk)[416](index=416&type=chunk) - A **$1,041,353** loan from Sam Lai and Maggie Yu made in December 2020 was amended in 2021 to bear **2% interest** and was paid in full on February 8, 2022[412](index=412&type=chunk)[413](index=413&type=chunk)[415](index=415&type=chunk) [Principal Accountant Fees and Services](index=73&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) TPS Thayer, LLC is the independent auditor, with audit and audit-related fees detailed for 2021 and 2020 Accountant Fees (2021 vs. 2020) | Fee Type | 2021 | 2020 | | :--- | :--- | :--- | | Audit Fees | $110,000 | $186,000 | | Audit Related Fees | $120,000 | $117,000 | | **Total** | **$230,000** | **$303,000** | Part IV [Exhibits and Financial Statement Schedules](index=74&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all exhibits filed with the annual report, including financial statements and corporate documents - This section lists all exhibits filed with the Form 10-K, including the Certificate of Incorporation, Bylaws, employment agreements, the 2021 Equity Incentive Plan, and various loan agreements[437](index=437&type=chunk) [Financial Statements](index=77&type=section&id=Financial%20Statements) Audited consolidated financial statements for 2021 and 2020 show increased assets and liabilities, with equity impacted by C-Corp conversion Consolidated Balance Sheet Highlights (As of Dec 31) | Account | 2021 | 2020 | | :--- | :--- | :--- | | **Total Assets** | **$18,816,991** | **$9,847,134** | | Cash and cash equivalents | $10,592,572 | $4,968,064 | | Inventory, net | $7,041,864 | $4,361,889 | | **Total Liabilities** | **$16,162,546** | **$5,672,154** | | Accounts payable | $9,539,258 | $3,204,256 | | Due to related parties | $5,214,794 | $1,041,353 | | **Total Stockholders' Equity** | **$2,654,445** | **$4,174,980** | - The company's tax status changed from an S corporation to a C corporation effective July 27, 2021, requiring provisions for income taxes going forward[463](index=463&type=chunk)[488](index=488&type=chunk) - Subsequent to year-end, on January 11, 2022, the company closed its IPO, raising net proceeds of **$6,156,360**[532](index=532&type=chunk)